On Friday, in conjunction with a $1.1 trillion spending bill, Congress finally passed the long-anticipated tax extender legislation, bringing over $625 billion in tax breaks to businesses and individuals and making some, such as the R&D Tax Credit, permanent once and for all. The president signed the legislation in the late afternoon, capping off a whirlwind final week of Congressional efforts to get the incentive bundle pushed through the House and Senate.
The final product contains provisions from various pieces of R&D Tax Credit legislation previously introduced, as well as other incentives, such as the Section 179D Energy Efficient Commercial Building Deductions, Section 45L Residential Home Tax Credits, Section 179 Expensing and Bonus Depreciation. Overall, the legislation provides stability to those investing in R&D and allows businesses to make smart purchasing decisions when it comes to major capital improvement projects.
R&D Tax Credit
First and foremost, Congress finally made the R&D Tax Credit permanent, after extending the incentive every couple of years for over three decades. The Credit previously expired on December 31, 2014, and by making it permanent, Congress effectively extended the credit retroactively for all of 2015 and for each year moving forward. Additionally, small businesses across the country rejoiced when Congress allowed certain companies to finally begin utilizing R&D Tax Credits generated from qualifying activities. Specifically, beginning with tax years starting after December 31, 2015, the legislation provided that:
- Privately-held companies with less than $50 million in average gross receipts (AGR) over the prior 3 years are no longer limited by Alternative Minimum Tax (AMT) in their use of R&D Tax Credits
- Companies not exempt from taxation under IRC Section 501 with less than $5 million in gross receipts in the credit year and no gross receipts for any taxable year preceding the 5-taxable-year period ending with that tax year can offset payroll tax (capped at $250,000) with R&D Tax Credits
Section 179D: Energy Efficient Commercial Building Deductions
Section 179D provides up to a $1.80 per square foot tax deduction for HVAC, Lighting, and Building Envelope property placed in service by a commercial property owner or designed/built for a government owned commercial building. Notable changes include:
- Extended through the end of 2016 (and retroactively for 2015)
- Updated energy efficiency standards (ASHRAE Standard 90.1–2007) beginning in 2016
§45L Residential Energy Efficiency Credits
Section 45L provides up to $2,000 per unit for multifamily developers or $2,000 per home for residential developers. Congress extended the credit through the end of 2016 (and retroactively for 2015).
Section 179 allows a business to deduct the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction. Critical provisions include:
- Expensing amounts ($500,000 limit and $2 million phase-out) for small businesses made permanent (and retroactive for 2015)
- 15-year recovery period for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property made permanent
- Air conditioning and heating units placed in service in tax years beginning after 2015 are now eligible for expensing
Bonus depreciation under Section 168(k) allows a business to further deduct the full purchase price of financed or leased new equipment and off-the-shelf software that qualifies for the deduction.
- 50% Bonus Depreciation extended for property placed in service in 2015, 2016, and 2017
- 40% Bonus Depreciation in 2018
- 30% Bonus Depreciation in 2019
BRAYN Consulting has experts in each of these areas and can help CPAs and their clients identify areas of potential cost savings and tax recovery. Contact us at (888) 773-8356 or email@example.com for your complementary Phase I estimate.